Definition
Annual recurring revenue (ARR) is the annualized value of the recurring revenue a subscription business currently books from active contracts — in effect, the size its income would reach if it ran at the present pace for a full year. It counts only recurring contract revenue; one-time fees and implementation charges are normally excluded.
How it works
The common shortcut is monthly recurring revenue (MRR) times twelve, or annualizing each contract and adding the results. New signings, renewals and upgrades push ARR up, while churn and downgrades pull it down, so operators usually track it in the form “beginning ARR plus new business minus losses”.
Usage
ARR is the standard size metric for subscription software and other recurring-revenue businesses, used in fundraising, valuation and internal operating reviews. Investors typically read it alongside growth rate and retention to judge the quality of the business.
Related and confusable terms
ARR asks “how much money comes in per year”, while ROI asks “how much did a given outlay earn back” — a size metric versus an efficiency metric. In startup conversations ARR also travels with PMF and VC: whether the market wants the product, and who funds the growth.